Investors can procure cheap loans for buying newly created consumer loan-backed, new and existing commercial mortgage-backed bonds. The deadline for investors to request loans for buying asset- backed debt for the seventh round of the TALF is Sept. 3.

The deal, called BAAT 2009-2, will be jointly led by Bank of America/Merrill Lynch, Barclays Capital (BARC), Citigroup Inc. (C), Credit Suisse Group (CS) and Royal Bank of Scotland (RBS). Last month, Bank of America sold the first deal eligible under TALF of $4 billion auto-loan backed deal at 135 basis points over a benchmark.

TALF was set up in March to reinvigorate the battered securitization market following the bankruptcy of Lehman Brothers Holdings Inc. Although TALF was originally applicable only to securities backed by consumer loans, it has been expanded to include commercial mortgage loan-backed bonds.

TALF loans against newly issued asset-backed securities and existing commercial mortgage-backed securities will be extended through March 31, 2010. For newly issued CMBS, which takes considerable time to be put together, the extension is until June 30, 2010.

The Fed is relying on the TALF to lower borrowing costs and unlock credit to consumers and small business. The program may provide as much as $200 billion in loans to finance the purchase of highly rated asset-backed securities comprising new consumer and small- business loans.

Rather, I thought it would be interesting to have a look at one of the (relative) success stories in the midst of the economic mire in which we find ourselves. The economy in question is Chile, and apart from Bloomberg's report that Finance Minister Andres Velasco, after having been "burned" back in November, is now almost a rock start the point is well worth pondering.

(cut and paste at my discretion)

The Chilean peso has risen almost 10 percent against the dollar this year to become the best-performing currency among emerging markets. The country’s economy is expected to grow 0.1 percent in 2009, as the region contracts 1.5 percent, according to the International Monetary Fund. While Chile stashed away copper profits, neighboring Argentina boosted spending when revenue from soybean exports rose, leaving it short on cash to stimulate the economy this year.

(...)

Velasco set up funds to invest the copper windfall abroad, mostly in government bonds. He announced plans to spend the interest from savings on scholarships and helped Bachelet extend social security to 1.3 million people. In his first three years in office, Velasco posted the biggest budget surpluses since the country returned to democracy in 1990. In 2007, Chile became a net creditor for the first time since independence from Spain in 1810.

Last July, copper reached a record of $4.08 a pound. By year-end, the central bank had built $23.2 billion of reserves. The government had $22.7 billion in offshore funds and about $2.8 billion in its own holdings.

After Lehman Brothers Holdings Inc.’s Sept. 15 bankruptcy sparked a global credit freeze, Velasco and De Gregorio had the equivalent of more than 30 percent of GDP available if needed to shore up Chile’s banks and defend the peso. The price of copper plummeted 52 percent from Sept. 30 to year-end, and Velasco dusted off his checkbook. In the first week of January, he and Bachelet unveiled a $4 billion package of tax cuts and subsidies. “He has been vindicated,” said Luis Oganes, head of Latin American research at JPMorgan Chase & Co. in New York, who studied under Velasco.

The story about the copper windfall in Chile is a remarkable story really and as I reported in an extensive review of the economy back in October Chile's government went into the crisis in the rare role as a net credit with debt to gdp at -11%. Moreover, I have also shown how Chile has managed to wield the benefits of the demographic windfall (the demographic dividend) rather well.

If we look at some indicative economic evidence it does indeed seem as if Chile is the odd man out in Latin America with the Peso performing somewhat better than the main benchmark (according to me) in the form of the Brazilian Real as well as the markedly lower increase in sovereign debt spread due to the crisis. 

So, I guess the question is then. Should you invest in Chile? Clearly, Chile is also like most other countries currently in a recession, but then again why not? I hold that Chile is one of the best opportunities to pick up a decent return in the context of an otherwise rather rugged emerging market edifice. But then again, I am not an investor.

[Disclosure for Seeking Alpha: No positions]

---

[1] Although please do retort in the comments section. And RP, you can bugger off!

The New York-based AIG will get $40 billion of new capital from the U.S. Treasury Department’s $700 billion bailout package, to help offset the damage wreaked by four consecutive quarterly losses, including a third-quarter deficit of $24.5 billion that the company announced yesterday (Monday), Bloomberg News reported. The U.S. Federal Reserve also is slashing an $85 billion loan to $60 billion, and is replacing a separate $37.8 billion loan to the insurance company with $52.5…

The New York-based AIG will get $40 billion of new capital from the U.S. Treasury Department’s $700 billion bailout package, to help offset the damage wreaked by four consecutive quarterly losses, including a third-quarter deficit of $24.5 billion that the company announced yesterday (Monday), Bloomberg News reported. The U.S. Federal Reserve also is slashing an $85 billion loan to $60 billion, and is replacing a separate $37.8 billion loan to the insurance company with $52.5…

“Once the global economy emerges from the current financial crisis, which it will, the countries that do well on our index are those that are best prepared to bounce back and perform well in the longer term,” Jennifer Blanke, director of the WEF’s global competitiveness network told The Financial Times.

And the United States is at the top. That’s the good news.

The bad news is that the safety of U.S. banks dropped to 40th this…

And it gets worse. That increase in borrowing costs will spread to other parts of the global debt market, representing an across-the board threat to corporate, institutional and sovereign borrowers. If interest rates remain high and interbank lending remains tight, the credit crisis is not likely to recede.

This raises two key questions. Are desperate times prompting desperate measures? Is LIBOR being manipulated by banks that are trying to make their financial positions appear better than they really are?

If that’s the case, it’s one more…

The newly created Money Market Investor Funding Facility (MMIFF) will help money market funds meet redemption needs and keep from “breaking the buck” – dropping below the normal $1 in net asset value – as The Reserve Primary Fund (RFIXX) did after the collapse of Wall Street investment-banking giant Lehman Brothers Holdings Inc. (OTC: LEHMQ). Struggling money-market funds that have seen more than $500 billion in redemptions since Lehman’s demise.

“The short-term debt markets have been under considerable strain in recent…

Margins Calls on Frozen Assets

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The rally was sparked by commitments from the major financial nations to cooperate in getting the credit markets functioning again, and by news that U.S. officials were putting the finishing touches on Washington’s version of a rescue plan under which the U.S. Treasury Department will invest an estimated $125 billion in nine major U.S. banks, and another $125 billion in smaller financial institutions, Bloomberg News reported early this morning (Tuesday).

The White House announced that U.S. President George W. Bush would meet at 7:30 a.m. EDT today with members of his financial markets working group. He’ll make a statement about the plan at 8:05 a.m. U.S. Treasury Secretary Henry M. “Hank” Paulson Jr., U.S. Federal Reserve Chief Ben S. Bernanke and Federal Deposit Insurance Corp. Chair Sheila C. Bair will discuss the plan during an 8:30 a.m. news conference, MarketWatch.com and Bloomberg both reported.

“These are tough times for our economies, yet we can be confident that we can work our way through these challenges and America will continue to work closely with the other nations to coordinate our response to this global financial crisis,” President Bush told reporters yesterday following a meeting with Italy Prime Minister Silvio Berlusconi at the White House.

After an eight-day losing streak – the worst for the Standard & Poor’s 500 Index since 1996 – those dramatic worldwide developments were enough to spawn a rally of historic proportions in U.S. shares. The S&P 500 rebounded from its worst week in 75 years with an 11.6% advance, jumping 104.13 points to close at 1,003.35. The Dow zoomed 936.42 points, or 11%, to close at 9,387.61 – eviscerating the previous record of 499 points, set in March 2000, and posting its best percentage gain since 1933.

The Nasdaq Composite Index climbed 194.74, or 12%, to 1,844.25. Sixteen stocks gained for each that fell on the New York Stock Exchange.

Last week’s 18% declines pushed both the S&P 500 and Dow down more than 40% from their peaks last October.

The S&P 500 ended the trading day Friday at 17 times reported earnings of its companies, the cheapest valuation in more than a year. Yesterday’s really boosted the Price/Earnings ratio to 19.2. The S&P 500 is still down 32% this year, positioning it for its worst yearly loss since 1937.

“The worst of the immediate danger is past,” Bruce McCain, chief investment strategist at Key Private Bank (KEY) in Cleveland, which manages $30 billion, told Bloomberg, the well-known financial news service.“It’s always easier when you’ve got markets going up and you’re not having to talk clients back in off the ledge.”

Kevin Divney, chief investment officer at Putnam Investments in Boston, told Bloomberg Television that “the real catalyst is the levels of valuation.”

But not everyone was quite so sanguine. Money Morning Investment Director Keith Fitz-Gerald cautioned that one strong day in the markets – even a record one – doesn’t necessarily mean there’s a full-fledged rebound in store.

“The real economic growth rates in the financial sector are unclear,” Fitz-Gerald said in an interview. “To say that it’s an accounting nightmare is an insult to the Hollywood honchos who actually make their living transforming nightmares into movies. Fiction writers could not concocted a better horror story than the one that’s rocked world financial markets since last November. Despite all the mergers and acquisitions, and the emergency bailouts, that we’ve seen to date, Wall Street hasn’t even begun to address the underlying business prospects – on anything more than a superficial level – of the lion’s share of the companies that are being bailed out.” [For Fitz-Gerald’s full take on yesterday’s market action – including some insights on how he believes investors should navigate the uncertainty – check out his special market commentary that appears elsewhere in today’s issue.]

All 10 industries in the S&P 500 added more than 7%. Monday’s worldwide rally – which ranged from Tokyo to New York – sent the MSCI World Index up 9.5 %, the biggest gain since the gauge was created in 1970, MarketWatch reported.

The bond market was closed for the Columbus Day holiday. The dollar fell the most in three weeks against the euro.

Details of a Bailout/“Rescue” Plan

On Sunday, the major European Union nations committed more than $2.3 trillion to safeguard their banks and financial system, according to The Associated Press.  Global efforts to rescue the international banking system gathered force yesterday, with Europe leading the way to provide money to shore up its financial sector and calm traders, and the U.S. hinting it’s on board with its own rescue plan, MarketWatch reported. [For details of the sweeping European rescue plan, check out this related report elsewhere in today’s issue of Money Morning.]

U.S. bankers were summoned to the Treasury Department yesterday, as the U.S. government prepared additional measures to stabilize markets, reported the U.S. shortwave broadcasting service, The Voice of America.

Over the weekend, Treasury Secretary Paulson had called the heads of the five biggest U.S. banks to come to Washington for face-to-face talks about the rescue plan, according to people briefed on the matter. Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd C. Blankfein, Morgan Stanley (MS) CEO John J. Mack, Citigroup Inc. (C) CEO Vikram Pandit, JPMorgan Chase & Co. (JPM) CEO Jamie Dimon and Bank of America Corp. (BAC) CEO Kenneth D. Lewis were all asked to attend, according to The AP.

The CEOs had been in Washington this past weekend to meet with international finance officials at the annual meetings of the International Monetary Fund (IMF) and World Bank. This group of U.S. banking sector leaders met with Paulson and Fed Chairman Bernanke for about three hours yesterday, several news sources have said.

When asked for precise details about the plan that’s to be unveiled early today, U.S. Treasury officials remained mum. Indeed, sources would only say that it would include a “series of comprehensive actions to strengthen public confidence in our financial institutions and restore functioning of our credit markets.”

However, after the CEO meetings, some details began to leak out. Industry insiders speculated late yesterday that the Federal Reserve and Treasury Department had outlined a plan to inject as much as $250 billion of the $700 billion rescue plan into top U.S. banks.

In addition, to jumpstart “Interbank” lending, the FDIC would actually insure new senior preferred debt for three years.

The Treasury Department would take the equity stakes in banks using authority it was granted under the $700 billion bank rescue plan enacted two weeks ago.

“We’re talking about making investments in these banks in a way that doesn’t necessarily punish existing shareholders,” Charles Bobrinskoy, vice chairman of Ariel Investments LLC, which manages $13 billion, said on Bloomberg TV. “Most of the bank actions to date in the U.S. have been good for bondholders but terrible for common stockholders.”

Government actions this year to prevent bankruptcies at investment bank Bear Stearns Cos., mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) and insurer American International Group Inc. (AIG) resulted in near-total losses for the firms’ shareholders.

The collapse of New York-based Lehman Brothers Holdings Inc. (LEHMQ) on Sept. 15 precipitated the latest chapter of the 14-month-old credit crisis, causing banks to stop lending to each other out of concern they may not get their money back.

Direct investments of this magnitude represent a new approach for Treasury Secretary Paulson, who initially advocated a bailout targeted at illiquid mortgage-related assets. When the markets didn’t respond positively to earlier plans, the Treasury Department shifted gears – in a big way.

“They’ve decided they need to do something drastic and this is drastic,” Gerard S. Cassidy, a bank analyst at RBC Capital Markets (RY) in Portland, Maine, told Bloomberg.

The proposed cash injections in exchange for preferred shares are said to be destined for Citigroup, Goldman Sachs, Wells Fargo & Co. (WFC), JP Morgan Chase & Co., Bank of America Corp., Merrill Lynch & Co. Inc. (MER), Morgan Stanley, State Street Corp. (STT), and Bank of New York Mellon Corp. (BK).

“The government has gone to ‘Plan B’ and it packs a big wallop,” Frederic Dickson who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, told the financial news service.

The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each, people said.

The government will obtain its stakes with a type of security designed not to dilute the value of common shares.

None of the nine banks getting government money was given a choice about it, said people familiar with the plans. All of the banks involved will have to submit to compensation restrictions as mandated by Congress, people said.

The remaining $125 billion will be used to recapitalize other financial institutions around the country, the people said. Neel Kashkari, the U.S. Treasury official overseeing the rescue of the financial system, yesterday said the equity purchases would be aimed at “healthy” firms.

Source: Dow Zooms to Record Gain Yesterday on Reports The Government Will Reveal Banking Bailout Plan Details Early Today

The Charlotte-based BofA also said it will cut its dividend in half – to 32 cents a share – and will sell as much as $10 billion in common stock to beef up its balance sheet.

The dividend cut underscores the crisis-like capital situation in the U.S. banking sector, especially since Bank of America executives had repeatedly told Wall Street that the bank would not cut the dividend, and had sufficient capital in place to maintain the 64-cent-a-share quarterly payout.

But at its current stock price, an annual dividend payout of $2.56 a share equates to an unrealistic – and unsustainable – dividend yield of more than 10%.

Bank of America detailed its deteriorating earnings outlook and plans for a dividend cut after the close of trading Monday. The Charlotte-based BofA actually moved its earnings announcement up so it could release the report early.

Bank of America shares fell $8.45 each to close at $23.77 yesterday. The shares have traded between $18.44 and $52.96 over the past 52 weeks.

"It appears that Bank of America moved up its release date in order to beat Wells Fargo [& Co. (WFC)] or Citigroup [Inc. (C)] to the marketplace and possibly to raise the capital before the short-sale rules are lifted," Keefe, Bruyette & Woods Inc. analysts wrote in a research report today.

The Securities and Exchange Commission has effectively banned the short sales of several hundred different financial stocks, although that temporary rule is scheduled to expire this week. With a short sale, speculators borrow shares of a stock and then sell them, betting they can buy the stock back later at a lower price, and pocket the difference.

For the third quarter, BofA said it earned $1.18 billion, or 15 cents a share, a 68% decline from the $3.70 billion, or 82 cents a share, in the same period a year ago. Analysts polled by FactSet Research had expected earnings of 61 cents a share, MarketWatch.com reported.

Bank of America Chairman and Chief Executive Kenneth D. Lewis blamed escalating charges for soured credit market investments and higher credit-card charge-offs for the results.

In a prepared statement, Lewis said that “these are the most difficult times for financial institutions that I have experienced in my 39 years in banking." Then, during a subsequent conference call with analysts, Lewis said that “we’ve seen – even in the last 45 days – things worsen.”

That prompted the company to take "a view that the recession is going to be a little deeper than we thought," Lewis said.

BofA said the dividend reduction should save about $1.4 billion a quarter – capital the bank needs to maintain its strength.

Deutsche Bank AG (DB) analyst Michael Mayo told MarketWatch that “while showing more realism with plans to raise $10 billion of new common stock [and announcing plans to] cut the dividend in half, Bank of America suffers as the largest U.S. consumer bank at a time of greater consumer weakness.”

Mayo maintained a “Hold” rating on the shares, but cut his 2009 full year profit estimate from the previous level of $3 a share to a new profit projection of $2.50 a share. He also cut his target price for BofA shares from $28 a share to a new target of $26 a share.

Money Morning Contributing Editor Horacio Marquez penned his most recent “Buy, Sell or Hold” column on Bank of America, noting that its recent maneuvers have made it an intriguing buying opportunity – for investors with an ultra-long-term profit horizon.

On July 1, BofA snapped up the operations of dying mortgage leader Countrywide Financial Corp. Bank of America ended up paying only about $2.5 billion in Bank of America stock in a deal that had been announced back on Jan. 11. BofA had already invested $2 billion for a 16% stake in Countrywide.

Then came the weekend switcheroo. In a stunning turn of events back on Sept. 15, when investors were watching and waiting for Lehman Brothers Holdings Inc.’s (OTC: LEHMQ) possible acquisition by either Bank of America or Barclays PLC (ADR: BCS), BofA instead emerged from the weekend announcing that it had struck a deal with Merrill Lynch & Co. Inc.’s (MER) President and CEO John A. Thain.

Realizing that the credit crisis had rendered moot the concept of the standalone investment bank, Thain avoided Lehman’s ultimate fate – bankruptcy – agreeing to be bought out by Bank of America. BofA’s Lewis astutely took full advantage of the opportunity.

He got to acquire Merrill Lynch in an all-stock transaction for a 70% premium over a very depressed Merrill Lynch stock price at about 1.83 times tangible book value, or about $50 billion, less than a third of its own market capitalization. What’s more, when the transaction closes (probably in the first quarter of 2009), Bank of America will jump from $1.7 trillion in assets to about $2.7 trillion in assets, retaining a strong capitalization ratio.

Source: Bank of America Shares Plunge on Earnings Shortfall, Major Dividend Cut

Hedge Fund Victims of the Bankruptcy

• London-based MKM Longboat Capital Advisors LLP said last week it will close its $1.5 billion Multi-Strategy fund in part because of assets stuck at Lehman
• Lehman Brothers Holdings Inc.'s bankruptcy probably means the end of hedge-fund manager Oak Group Inc. after 22 years in business.
• Diamondback Capital Management LLC, a Stamford, Connecticut-based hedge fund, told investors that it had assets of $777 million stranded in Lehman
• Managers with a smaller percentage of assets in Lehman limbo include Harbinger Capital Partners, Amber Capital LP and Bay Harbour Management LLC, which are each based in New York, and RAB Capital Plc and GLG Partners Inc., both in London
• Darden Capital Management, an investment club run by students of the University of Virginia's business school, has about $6 million in four funds that are stranded.

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Source: Chart of the Day/Bloomberg

“Despite all the rhetoric, with the rally in the dollar index, OPEC is still saying `thank you very much,''' Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland, said. “For OPEC, $80 now is the same as $100 two months ago.''

Loss of Merrill, Lehman Signals `Tectonic' Shift in Wall Street Landscape In the biggest reshaping of the financial industry since the Great Depression, two of Wall Street's most storied firms, Merrill Lynch & Co. and Lehman Brothers Holdings Inc., headed toward extinction.

Chance of Rate Cut at Fed Meeting Now Set at 88%

Fed funds futures contracts attached an 88 percent chance the Fed will lower rates by 25 basis points at or before Tuesday's Federal Open Market Committee meeting.

URANIUM

Western Australia Set for Uranium Mines as Liberals Win State Government Western Australia's uranium-related companies are set for a boost after the Liberal Party, which favors ending a ban on mining the nuclear fuel, yesterday won the backing of the Nationals to form government.

Toro, Energy Rise on Optimism Western Australia Will Open Uranium Mining Toro Energy Ltd. and Energy & Minerals Australia Ltd. led gains in shares of Western Australian uranium explorers as the Liberal Party, which has indicated it will allow mining of the fuel in the state, won the right to govern.

CRUDE OIL

Crude Oil Falls Below $97 as Ike Spares Texas Refineries, Lehman Collapses Crude oil fell below $97 a barrel to the lowest in seven months as refineries along the Gulf of Mexico coast escaped major damage from Hurricane Ike and Lehman Brothers Holdings Inc. filed for bankruptcy.

Emerging-Market `Panic' Masks Record Profits, May End With 20% Stock Rally Emerging-market companies, earning more for shareholders than ever before, are getting no respect just as their stocks drop to levels that preceded rallies.

George Soros Hedge Fund Notes

Billionaire George Soros's hedge fund may have lost at least $120 million on its stake in Lehman Brothers Holdings Inc., mostly acquired in the second quarter, as the investment bank suffered its worst financial result.

Soros Fund Management LLC, which manages $20 billion, purchased 9.47 million shares, or about 1.4 percent of New York- based Lehman, between March 31 and June 30, according to a filing with the Securities and Exchange Commission. The losses could be as high as $380 million, depending on when New York-based Soros purchased the stake and if he still owns the shares.
AllianceBernstein LP, Wellington Management Co. and Janus Capital Group Inc. also bought Lehman shares in the second quarter. Lehman today reported a $3.9 billion third-quarter loss, the biggest in its 158-year history, and said it will sell a majority stake in its asset-management unit, spin off commercial real-estate holdings and cut its dividend.

``There was a belief that Lehman was too big to fail,'' Geoff Bobroff, an investment-industry consultant in East Greenwich, Rhode Island, said of the reason investors may have bought the stock. ``They may still be rewarded if a buyer surfaces who will pay more per share than what they paid.'' more......

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URANIUM

Paladin Energy Says That It Is Set to Expand Uranium Production in Africa Paladin Energy Ltd., the Australian producer of uranium in Africa, said an expansion of its mine in Namibia is due for completion at the end of the year, while a project in Malawi will start operating in January.

MINING

Rio Tinto Earnings Double as Iron-Ore Miner Fights $142 Billion BHP Offer Rio Tinto Group, fighting a $142 billion hostile offer from BHP Billiton Ltd., posted first-half profit that beat analyst estimates on increased aluminum sales and record iron ore prices.

GOLD

U.S. Mint resumes gold coin orders on limited basis
The Mint said that it will equally divide its Eagles inventory available for sale each week into two equal pools, with the first allocated equally among all authorized dealers, and the second pool distributed according to the dealers' past sales performance.

Confidence fell as ``sentiment on living conditions and the local economy weakened,'' the central bank said. ``The number of consumers with a negative view on the economy rose sharply.''